Maintenance of CRR (Cash Reserve Ratio)

March 8, 2020
SEBI Grade A Test Series

To securing the monetary stability in the country, RBI has prescribed the maintenance of CRR for Scheduled Commercial Banks (SCBs) without any floor or ceiling rate in terms of Section 42(1) of the RBI Act, 1934. The CRR is prescribed at 4.00 per cent of a bank’s total of Demand and Time Liabilities. All SCBs are required to maintain minimum CRR balances up to 95 per cent of the average daily required reserves for a reporting fortnight on all days of the fortnight. The Reserve Bank does not pay any interest on the CRR balances maintained by SCBs.

Maintenance of CRR

Liabilities not to be included for DTL/NDTL

The following liabilities do not form part of liabilities for the purpose of CRR and SLR:

  • Paid up capital, reserves, any credit balance in the Profit & Loss Account of the bank, amount of any loan taken from the RBI and the amount of refinance taken from Exim Bank, NHB, NABARD, SIDBI
  • Net income tax provision
  • Amount received from DICGC towards claims and held by banks pending adjustments thereof
  • Amount received from ECGC by invoking the guarantee
  • Amount received from insurance company on ad-hoc settlement of claims pending judgement of the Court
  • Amount received from the Court Receiver
  • The liabilities arising on account of utilization of limits under Bankers’ Acceptance Facility (BAF)
  • District Rural Development Agency (DRDA) subsidy of ₹10,000/- kept in Subsidy Reserve Fund account in the name of Self Help Groups
  • Subsidy released by NABARD under Investment Subsidy Scheme for Construction/Renovation/Expansion of Rural Godowns
  • Net unrealized gain/loss arising from derivatives transaction under trading portfolio
  • Income flows received in advance such as annual fees and other charges which are not refundable
  • Bill rediscounted by a bank with eligible financial institutions as approved by RBI

Exempted Categories

The SCBs are exempted from maintaining CRR on the following liabilities:

  • Liabilities to the banking system in India as computed under clause (d) of the explanation to Section 42(1) of the RBI Act, 1934;
  • Credit balances in ACU (US$) Accounts; and
  • Demand and Time Liabilities in respect of their Offshore Banking Units (OBU).
  • The eligible amount of incremental FCNR (B) and NRE deposits of maturities of three years and above from the base date of July 26, 2013, and outstanding as on March 7, 2014, till their maturities/pre-mature withdrawals
  • Minimum of Eligible Credit (EC) and outstanding Long term Bonds (LB) to finance Infrastructure Loans and affordable housing loans.

Penalties on default in maintenance of CRR

The penal interest is charged as under in cases of default in maintenance of CRR by SCBs:

  • In case of default in maintenance of CRR requirement on a daily basis which is currently 95 per cent of the total CRR requirement, penal interest will be recovered for that day at the rate of three per cent per annum above the Bank Rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal interest will be recovered at the rate of five per cent per annum above the Bank Rate

References

Master Direction on CRR and SLR:
https://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=9905

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